How To Guide For: Understanding Life Insurance -- The Different Types Of Life Insurance --Why Is It

A life insurance policy is a contract with an insurance company. In exchange for premium payments, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries upon the insured's death. There are many varieties of life insurance. But the common types are Term life insurance, Universal life insurance and Whole life insurance. Lets start with Term life insurance which is designed to provide financial protection for a specific period of time. Traditional term insurance, the premium payment amount stays the same for the coverage period you select. After that period, policies may offer continued coverage at a substantially higher premium payment rate. Term life insurance is generally less expensive. Universal life insurance is a type of permanent life insurance designed to provide lifetime coverage. Universal life insurance policies are flexible and may allow you to raise or lower your premium payment or coverage amounts throughout your lifetime. Universal life insurance typically has higher premium payments than term. Whole life insurance is a type of permanent life insurance designed to provide lifetime coverage. Because of the lifetime coverage period, whole life usually has higher premium payments than term life. Policy premium payments are generally fixed. Whole life insurance has a cash value, which functions as a savings component and may accumulate tax-deferred over time.

It's important to note that death benefits from all types of life insurance are generally income tax-free. So now that we know the common types of life insurance. Now why is it needed. Life insurance is needed to protect your family and loved ones, if they depend on your financial support for their livelihood. Life insurance replaces your income when you die. Life insurance is not mandatory. To get more information on life insurance and why it is needed -- click the pictures below to read the articles.